Ghana’s economy is likely to end 2023 with a public debt to GDP ratio of 99 percent, Fitch Solutions has said. The projected public debt figure is an increase from the previous 88% recorded in 2022.
The primary driver for this projected rise is the depreciation of the cedi against the US dollar, with the local currency having already lost about 11.80% in value to the dollar on the retail market and 22% on the interbank market.
Ghana faces stive debt accumulation matrix. But Fitch is projecting that the public debt could decline by 4 percent of GDP at the end of 2024 to 95% of GDP and further to 94% in 2025 at the back of continues fiscal consolidation and stabilisation of the cedi.
Meanwhile, the International Monetary Fund (IMF) had previously projected a decline in Ghana’s debt-to-GDP ratio for 2023 to 84.9% from 92.4% in 2022.
The October 2023 Fiscal Monitor indicated an expected consistent decline in the country’s total debt-to-GDP ratio over the next five years.
Ghana has faced challenges in its public finances last year, leading to restricted access to Eurobond markets and a significant decline in external liquidity.
This resulted in credit downgrades, including a downgrade to ‘CCC’ by Fitch and subsequent placement on restricted default (‘RD’) in early 2023.
Despite the downgrades, Fitch notes that foreign-currency debt constitutes less than 40% of Ghana’s total public debt, well below the ‘B’ median.
The agency acknowledges Ghana’s stronger levels of governance compared to the ‘B’ median and its democratic record with peaceful transitions of power since 1992.
However, Fitch expresses concerns about the country’s weaknesses, including a low international liquidity position, low per-capita income and human development indicators, and a heavy reliance on exports of oil, gold, and cocoa, exposing it to commodity price volatility.
Government’s plan to merger two major state banks National Investment Bank (NIB) and the Agricultural Development Bank (ADB) have met stiff opposition.
Various stakeholders of the economy disagree with the idea.
Latest to contribute to the raging debacle is the Head of the Business School at the University of Ghana, who believes the proposed merger would be economically senseless. The government over the years has been holding onto plans to merge ADB and NIB due to the struggles of the two banks.
“You cannot put two big banks together,” he said, adding: “Prudent economic management will not allow merging two state-oriented banks”, Professor Laud Mensah said in an interview last week.
“Any outcome from the decision-making level is likely to create imbalances in the bank’s balance sheet.”
Professor Mensah called out the finance minister, who is supporting this initiative, to provide a paper indicating the economic value they intend to generate by allowing ADB to acquire NIB.
Additionally, he suggested that external funds would be the best way for an economy to divert.
Professor Mensah stated that if ADB absorbs NIB, their balance sheets would be weakened.
NIB, being cash-trapped, needs an external investor to inject funds into the bank.
Already, the Minority in Parliament has expressed its opposition to the government’s plans to either collapse the National Investment Bank (NIB) or merge it with the Agricultural Development Bank (ADB).
The Spokesperson on Finance, Isaac Adongo, speaking to journalists in Parliament fortnight ago alleged that this plan is merely a smokescreen to sell off the two banks after their merger to government cronies as part of State capture efforts.
“It is clear that this is not about the interest of NIB. This is the last step towards passing through the back door to acquire NIB and ABD for themselves in a state capture,” he said on Thursday, September 28.
The Minority has asked the government to pay the debt owed to the bank and further proscribed measures that will make it viable.
“Government should just restructure the balance sheet of NIB to swap all the NIB debt that it owes to government and give government equity. Government says it doesn’t have money to capitalize the bank, but it has given 500 million debt to NIB, it has given 800 million debt… The two will give you 1.3 billion. It is your money. You owe the bank. The money is already sitting there. Commit to saying that this is my contributing towards capitalisation so that we issue shares to you and move the money to equity.
Hon Adongo said the move by the imminent collapse and subsequent acquisition by ADB will lead to the loss of about 800 jobs.
The MP further indicated that contractors NIB engaged to work on government projects are yet to be paid by the Finance Ministry.
“As a result of that, NIB has incurred GHC1 billion on its loan books, resulting from Ken Ofori-Atta’s refusal to pay, now you say NIB is weak.”
Also, a banking consultant, Dr Richmond Atuahene, has condemned the proposed merger idea.
“I don’t think merging NIB and ADB is solving any problem, it is not a solution at all,” the Consultant reacted to the government idea.
He contends that the government should not rush on the matter but take its time to conduct a diagnostic study of the two banks first.
According to him, the NIB has suffered from corporate government crises in addition to its current fiscal challenges noting that the buildup to the current point started in 2016.
He added ADB is also going through the same challenges based on a report published in 2022.
“…ADB does not have the capacity to acquire NIB. He said even if government refinances ADB, it may not be enough to take over NIB’s debts.”
For this reason, he suggested that both banks – NIB and ADB be recapitalised, explaining that “you don’t bring a weak institution to buy a bad institution. You have what we call a good bank buying a bad bank, there is a theory there but the two of them are not good for anything.”
Ghana’s fiscal deficit-to-Gross Domestic Product (GDP) ratio is estimated to record 4.6 percent as against 11.2 percent in 2022, International Monetary Fund has predicted.
This 2023 estimated ratio is an improvement of about 6.6% of the 2022 figure.
A further reduction in the ratio is expected in the next five year. This follows a significant cut in government expenditure and expected improvement in revenue as announced in the 2023 budget review. The fiscal deficit-to-GDP recorded in 2020 and 2021, were pegged at 17.4% and 12.0% respectively.
“It is expected to fall to 4.1% of GDP in 2024 and subsequently to 3.5% of GDP in 2025 and 3.0% of GDP in 2026. It will again decline to 2.6% of GDP in 2027and 2.8% of GDP in 2028”, the October 2023 Fiscal Monitor noted.
“These figures indicate that the government has adopted a tight budget spending in 2023 as captured by the IMF Programme which stresses more on revenue mobilisation.
“This is also a reflection of the country’s second quarter growth rate where some sub-sectors such as Construction (-11.7%) that rely heavily on government spending contracted.”
Similarly, the primary balance will fall to 0.5% of GDP, from a deficit of 3.7% in 2022.
However, in the next five years, the primary balance will record a surplus.
This is a result of an anticipated strong revenue growth and reduced expenditure in 2023.
Meanwhile, the Fund has revealed that, the 1.2% Gross Domestic Product (GDP) growth forecast for Ghana in 2023 captured in the World Economic Outlook (WEO) was based on old data.
According to the Resident Representative to Ghana, Dr. Leandro Medina, the Fund would revise the growth rate projection when it receives new data.
The Resident Representative said the Fund did not take into account the recent data released by the Ghana Statistical Service.
“In particular, it did not take into account the recent data that showed a higher growth rate than expected at the beginning of the programme (averaging 3.2% for the first two quarters).”
Dr. Madina argued that “ At the current juncture, and based on the findings of the first ECF [Economic Credit Facility] review, the IMF Staff assessment indicated that the growth projection for 2023 will be revised up from the previous 1.5%”.
The IMF lowered Ghana’s growth rate to 1.2%, from the July 2023 forecast of 1.6%.
It was the second time the Fund has revised Ghana’s GDP growth for this year.
In April 2023, the Fund predicted a 2.8% growth rate for Ghana in its World Economic Outlook (WEO) Report.
The World Bank had also slightly lowered the country’s growth rate forecast for this year to 1.5%, according to its October 2023 Africa Pulse Report.
The International Monetary Fund (IMF) has expressed satisfactory of Ghana’s programme during the first review and has assured disbursement of second tranche of US$600m disbursement in November.
The Fund noted a significant improvement in the country’s economic recovery programme over the past month.
Ghana, concluded a Balance of Payment Support of a US$3 billion from IMF in May this year. The debt distressed country is currently undergoing its first programme review, expected to be conclude in November. But, the Managing Director of the Fund in an interview last week noted that, Ghana, which has defaulted on its debt, is making progress under their IMF programme.
“Ghana is doing actually quite well. You have seen that their position has improved over the last month, the economy is in a much better place”, Kristalina Georgieva has said. “I would very much hope that we can have the disbursement,” she said referring to a $600 million tranche of IMF money that’s due to be disbursed in November.
“That is part of the confidence building that we are projecting,” she said regarding Ghana’s economic stability.
In her broader remarks, Georgieva identified addressing unsustainable debt crises as a “top priority”.
She defended the G20 Common Framework for debt treatment, despite criticism for its perceived slow pace in providing relief to applicants.
Georgieva pointed out that as more nations seek assistance, the process is becoming more efficient, with Chad, Zambia, Sri Lanka, and Ghana demonstrating shorter timeframes for progress.
Chad took 11 months between an initial staff level agreement to financial assurances, Zambia nine months, Sri Lanka six months and Ghana five months, she said.
“I hear lots of people saying, oh this doesn’t work,” she said.
“My question to them is, ok, you forget about it. What do you have instead?”
Meanwhile, the Fund noted that, Tunisia doesn’t need a restructuring yet but should act soon to shore up its economy.
Also, the IMF boss said Egypt will “bleed” precious reserves unless it devalues its currency again, as she praised other steps her institution’s second-largest borrower has taken to right its stricken economy.
Egypt’s devalued the pound three times since early 2022, with the currency losing almost half its value against the dollar.
Georgieva said it’s delaying the inevitable by holding off from doing so again and the longer it waits, the worse it will get.
“The sooner we can reach an agreement on the road map for this the better,” she said.
“The issue here is very simple. Egypt would bleed reserves protecting the pound and neither the country nor overall the environment is such that this is desirable. That’s a problem that has to be solved.”
Egypt’s net international reserves last year fell to the lowest level since 2017 before stabilizing in recent months to reach $35 billion in September — still down by more than a fifth since their 2020 high.
Reopened DDEP: Gov’t expresses satisfaction for securing GH₵3.9bn
Adnan Adams Mohammed
The government has successfully secured GH₵3.9 billion as at end of the reopened domestic debt exchange programme which ended last week.
According to a statement issued by the Finance Ministry, no further tenders will be accepted, and neither revocations nor withdrawals will be permitted. The domestic debt exchange initiative is an integral part of the government’s broader strategy to alleviate its debt burden and enhance debt sustainability.
“The Government deeply expresses its appreciation to bondholders and key stakeholders for their immense support of the Domestic Debt Exchange Programme (DDEP), the results of which constitute a significant achievement for the Government to implement fully the economic strategies in the post-COVID-19 Programme for Economic Growth (PC-PEG) during this current economic crisis”, the statement noted.
Africa is yet to see anything close to a full return on its massive oil and gas resources. With one-third of the continent – almost 500 million people – still having no access to electricity, ending energy poverty across Africa is among the planet’s most urgent challenges.
To address this, action it is imperative to accelerate upstream investment across Africa and ensure a far wider share of its economic benefits. Giant discoveries in Namibia, FIDs (Final Investment Decision) in Angola and a bumper 2022 for new field start-ups all bode well, but can numerous other major projects across Africa secure the financing needed to move forwards?
Developing Africa’s huge natural gas reserves is essential not only for growing export revenues but also to support domestic economic growth and help the continent unlock its low-carbon energy potential. Can Africa find an economic solution for its gas riches?
As the Majors downsize across Africa, domestic independent operators are stepping up to champion the region’s oil and gas developments. But with mounting challenges around financing, carbon emissions and dominant NOCs (National Oil Companies), can these companies prosper?
Ahead of African Oil Week, which is due to take place between 09 – 13 October 2023 in Cape Town, at the International Convention Centre, Wood Mackenzie considers how to get oil and gas working for Africa.
Financing Africa’s oil and gas development
While African upstream investment is recovering, securing capital to develop the continent’s oil and gas resources remains a monumental challenge. Putting this into perspective, despite the region having the third-largest remaining resource base by region, over the next ten years we expect Africa to account for only 6% of global upstream investment. As a result, Africa’s production will decline from 12.4 million boepd in 2024 to 10.1 million boepd in 2033.
Reversing this needs action on three fronts. First, reducing costs and improving project delivery. There are positive developments here: Angola, Cote d’Ivoire and Nigeria have led the way, and we expect 2023 to be a significant year for new production start-ups. African greenfield FIDs are also moving forward. Led by Angola, we expect four major greenfield projects reaching FID throughout the year. But more must be done, and cost inflation pressures will weigh on both operators and lenders at African projects that are often more expensive and complex to finance.
Second, the role of government. With high prices, governments’ default position will be to increase tax rates. This is likely to exacerbate the problem. A more enlightened approach would be to ease the tax take on new investment, as Nigeria and Angola have both done. Tax allowances for renewables to power upstream developments would be even bolder, showing a commitment to decarbonise Africa’s upstream industry and diversify into low-carbon technologies.
Third, investments in Africa must respond to the increasing regulations around sustainability. African upstream carbon intensity is amongst the highest globally, deterring buyers looking for low-carbon supply. African countries must tackle the major sources of upstream emissions – flaring, production and processing, and methane leakage – or risk an increasing number of IOCs (International Oil Companies) and lenders walking away.
Finding new avenues to gas resource development
With domestic gas markets non-existent in many countries, Africa’s major gas resource holders have historically looked to onshore LNG export projects for commercialisation. Most have been defined by high costs, low returns and long payback periods.
Alternative development solutions for their gas resource are therefore crucial for gas-rich nations throughout Africa and floating LNG (FLNG) is offering a differentiated pathway to gas monetisation.
The reasons are clear. After a stuttering start, FLNG’s lower capital costs combined with increased demand for quick-to-market LNG has again made FLNG an attractive proposition for developers, investors and off-takers.
Africa is at the centre of the current boom. Cameroon GoFLNG and Mozambique’s Coral Sul FLNG project blazed the trail, with projects in Mauritania/Senegal, Congo and Gabon following. FLNG is also under consideration in Nigeria and Namibia, and offers an alternative option for Mozambique’s troubled onshore Rovuma project.
Despite this bullish outlook, FLNG is not without risks. Concerns over cost blowouts, scheduling delays and security will need to be managed by developers of more than 20 mmtpa of African FLNG either under construction or considering FLNG as a development option.
A bigger challenge for Africa is developing gas for the domestic market. Despite the immense potential for gas to boost power generation and support economic growth, familiar issues around affordability and limited infrastructure continue to hold back capital investment.
The rise of the Africa’s independent operators
It is a sign of the increasing maturity of African independent operators that local players have the confidence to take on the development of their own natural resources. African independents are increasingly active, picking up assets from IOCs divesting non-core African portfolios.
We identify three drivers. First, the maturity of the Majors’ legacy African portfolios. With these companies under increasing pressure to focus on low-carbon, low-cost opportunities, divesting from late-life, carbon-intensive assets in locations including Nigeria, Gabon and Congo fits with their strategies.
Second, African governments are increasingly supportive of local independents accessing the region’s substantial resources. Favourable tax terms for new entrants and marginal assets have helped boost the emergence of African independents. Conducive regulatory environments in turn lead to greater economic diversification, job creation and growth in domestic industries. The Dangote refinery development in Nigeria, which is set to transform the regional oil products sector, is just one example.
Third, while financing remains a significant hurdle, African independents are increasingly demonstrating their ability to navigate above-ground challenges which have deterred IOCs from maximising the potential of their assets. A local “licence to operate” and partnerships with international investors are helping African companies access capital and the technical expertise required to acquire and develop assets.
A finance expert has shot-down arguments by government actors that the second quarter Gross Domestic Product (GDP) of 3.2 percent as recorded shows that the economy of Ghana is recovered from its deteriorated stage.
The expert alluded that, conscientious examination of the macro-economic indicators and targets show that the country has not recovered.
Reacting to some commentaries by government actors and economists, after the Ghana Statistical Service released the second quarter economic figures, who are of the view that, although the 3.2% is slower as compared to the first quarter growth of 3.3% as revised from 4.2 yet it is a sign that the economy is recovering.
“What we are seeing now is that government’s spending is driving this expansion, for the second quarter of this year and not real economic activities undertaking by businesses,” Professor Lord Mensah, Lecturer at University of Ghana Business School said in an interview last week.
“A lot more needs to be done. Government’s spending is driving this expansion, and not real economic activities undertaking by business”, he stressed.
Prof. Mensah pointed out that real growth would have positively impacted on government’s revenue.
Figures released by the Ghana Statistical Service highlighted a decline in the growth of the Ghanaian economy, particularly in the industrial sector, which continues to face challenges. During the second quarter of 2023, the economy expanded at a rate of 3.2%, a figure notably smaller than the previous year’s performance (3.5%).
Several key subsectors, including construction, electricity, and manufacturing, all experienced contractions during this period, contributing to the overall economic slowdown. Statistical Service also revised the growth rate for the first quarter of 2023, adjusting it from the earlier reported 4.2% down to 3.3%.
In the second quarter of 2023, the economy displayed a mix of expansion and contraction across various sectors. Notably, the Information & Communication sector experienced remarkable growth, expanding by 26.4%. Fishing also saw a substantial expansion of 12.2% and Social Work expanded by 11.0%.
However, six sub-sectors faced contraction during this period, with construction showing the most significant decline at -11.7%, suggesting potential challenges in the construction industry. Trade, along with repair of motor vehicles and motorcycles, contracted by -5.3%.
Electricity, forestry, water supply, sewerage, waste management and remediation activities, and manufacturing also experienced varying degrees of contraction.
Ghana’s government has already revised its economic projections for the year, reducing the growth forecast by approximately 50%. Additionally, the country is now expecting higher inflation and a primary deficit, a significant shift from the previous hope for a surplus.
During the mid-year budget review in parliament, Finance Minister Ken Ofori-Atta disclosed that last year’s budget deficit was 11.8 per cent of GDP, nearly double the initial target of 6.3 per cent. For 2023, the government anticipates the economy to grow by 1.5 per cent, down from the earlier projection of 2.8 per cent.
These adjustments are attributed to fiscal consolidation measures and challenging global economic conditions.
This downward revision in projected growth for 2023 is attributed to a general slowdown in all three sectors of the economy, influenced by factors such as the fiscal consolidation plan under the three-year IMF-supported programme and challenging global conditions.
Nevertheless, the Finance Minister remains hopeful, projecting that the overall GDP growth will rebound to 2.8%, 4.7% and 4.9% in 2024, 2025 and 2026, respectively.
Bank of Ghana (BoG) Governor has asked all commercial banks operating in the country to tender their ‘capital restoration plans’ for a ‘progressive recapitalization’ over a three-year period.
The recapitalization exercise is as a result of a turnaround in banks’ profits and planned equity capital injections. The aim is to rebuild banks’ capital buffers, enhance resilience, and position the sector to support the country’s growth agenda.
In 2022, the industry collectively posted losses of GH¢8.0 billion, compared to a profit of GH¢7.4 billion in 2021. Key profitability indicators such as return-on-assets and return-on-equity turned negative due to these losses.
“The 2022 audited financial statements of banks reflected the challenging operating environment of that year. Most banks reported significant mark-to-market valuation losses on their holdings of government bonds, along with higher impairments on loans and rising operating costs”, Dr. Ernest Addison said while addressing the banking sector’s performance during the 60th-anniversary launch of the Chartered Institute of Bankers Ghana in Accra last week.
However, Dr. Addison shared some positive news, stating that the banking sector’s data for the first half of 2023 showed improved performance, despite declines in some key financial soundness indicators. This improvement came after industry stakeholders reached a consensus on how to address the losses and with the timely introduction of temporary prudential and regulatory reliefs by the Bank of Ghana.
Prudential data revealed that banks had rebalanced their portfolios from medium- and long-term investments to short-term investments, with gradual increases in new loans. As of June 2023, the total assets of the banking industry amounted to GH¢242.4 billion, indicating a 21.2 percent annual growth compared to 22.8 percent growth in June 2022. This asset growth was primarily driven by investments, particularly in short-term investments, while medium to long-term investments declined.
Despite increased income levels, the banking sector saw rising costs, reflecting the challenges of the operating environment. However, the increase in costs did not outweigh earnings, resulting in a strong profit-before-tax for the first half of the year. Profits showed a remarkable 51.2 percent increase in June 2023 compared to the same period in the previous year. Similarly, the industry’s net income or profit-after-tax increased to GH¢4.3 billion from GH¢2.8 billion, representing a 51.4 percent increase in June 2023.
Overall, Dr. Addison indicated that the banking sector’s performance had improved in the first half of 2023.
He further noted that for the remainder of the year, the banking sector is expected to remain broadly stable, supported by regulatory reliefs and sustained growth in profitability.
Government has reopened the Domestic Debt Exchange Program (DDEP) which was closed in Febuary this year dubbed “February 2023 Exchange” to extend invitation to bondholders not yet on program.
The reopening offers direct invitation to E.S.L.A. Plc and Daakye Trust Plc bondholders to participate in the Government of Ghana debt restructuring program.
The Ministry of Finance, in a press statement released last week, encouraged holders of domestic notes and bonds to actively consider and accept this invitation. The ministry explained that, this invitation aims to provide an opportunity for holders who were unable to participate in the February 2023 exchange due to various delays or reasons.
“This reopening invites holders of domestic notes and bonds from the Republic of Ghana, specifically those of E.S.L.A. Plc and Daakye Trust Plc, to exchange their eligible bonds”, the statement said.
“In return, they will receive a package of new tranches of the same bonds issued by the government, known as the “New Bonds,” which were part of the February 2023 Exchange. This renewed invitation is referred to as the “Invitation.”
The release also emphasized that, this invitation is exclusively available to registered holders of Eligible Bonds who are not Pension Funds.
However, it noted that, if you have previously tendered Eligible Bonds in either of the two prior GHS-denominated invitations for exchange conducted by the Government in 2023, namely the February 2023 Exchange or the Pension Fund Alternative Offer in August 2023, you are no longer eligible to participate in this Invitation and are no longer considered an Eligible Holder.
The Domestic Debt Exchange Program was initiated in December 2022 with the objective of restoring Ghana’s capacity to manage and service its debt.
This new opportunity allows bondholders to reconsider their holdings and participate in the exchange, contributing to the government’s debt management efforts.
Meanwhile, Pensioner Bondholders have swiftly declared their intention not to be part of the government’s fresh Domestic Debt Exchange Programme (DDEP) for ESLA and Daakye Bondholders.
In a radio interview, last week, the Convener for Pensioner Bondholders, Dr Adu Anane Antwi, explained that no pensioner is available to accept the government’s offer.
He stated that pensioners cannot be part of the newly announced offer, emphasising that they have been exempted.
“No pensioner bondholder can ever be targeted, because we have been exempted totally. We don’t have anything to do with this exchange at all. We are not part of it. There’s no pensioner available now for an offer to be made to, simple as that. There’s nobody in category B who is there for the offer, and says I wanted to go in, but I didn’t have the opportunity to go in so now, I’m going in. So category B shouldn’t be in this document at all.
“The government cannot overturn its own decision to exempt us. It is in the records of parliament, we have a letter, we have been exempted, and it’s not based on any condition, it’s an unconditional exemption. Government cannot go anywhere”.
Dr Adu Anane chastised the Ministry of Finance for lacking an understanding of the new DDEP, adding that they will organise a press conference in the coming days to give a proper explanation on the issue.
“I believe they [government] didn’t get the understanding well, they haven’t analysed things well. If you analyse the situation, the person who was writing the memorandum of exchange should have known that there were no Category B holders available for that offer. They have already accepted. We will have a press conference and explain to the people who are handling this matter that they are wrong. They didn’t understand the concept well,” the Convener of Pensioner Bondholders said.
Also, An economist, Dr John Gatsi, has said bondholders cannot be compelled to be part of ESLA and Daakye Trust.
“If there’s any call for people to surrender for Daakye PLC and ESLA, it should not include those who have already indicated that they will not be part. Nobody can be compelled to go into a debt exchange programme. DDEP is a voluntary offer if people refuse to be part, they have not offended any law,” Prof Gatsi stated.
